The Long and The Short Of It

Forex markets use the same terms to express market positioning as most other financial markets do. But because currency trading involves simultaneous buying and selling, being clear on the terms helps - especially if you‘re totally new to financial market trading.

Going long

No, we’re not talking about running out deep for a football pass. A long position, or simply a long, refers to a market position in which you’ve bought a security. In FX, it refers to having bought a currency pair. When you’re long, you‘re looking for prices to move higher, so you can sell at a higher price than where you bought. When you want to close a long position, you have to sell what you bought if you’re buying at multiple price levels, you’re adding to longs and getting longer.

Getting Short

A short position or simply a short refers to a market position in which you’ve sold a security that you never owned. In the stock market, selling a stock short requires borrowing the stock (and paying a fee to the lending brokerage) so you can sell it. In forex markets, it means you’ve-sold a currency pair, meaning you’ve sold the base currency and bought the counter currency. So you’re still making an exchange, just in the opposite order and according to currency-pair quoting terms. When you’ve sold a currency pair, it’s called going short or getting short and it means you’re looking for the pair’s price to move lower so you can buy it back at a profit. If you sell at various price levels, you’re adding to shorts and getting shorter.

In most other markets, short selling either comes with restrictions or is considered too risky for most individual traders. In currency trading, going short is as common as going long. “Selling high and buying low” is a standard currency trading strategy.

Currency pair rates reflect relative values between two currencies and not an absolute price of a single stock or commodity. Because currencies can fall or rise relative to each other, both in medium and long-term trends and minute-to-minute fluctuations, currency pair price are as likely to be going down at any moment as they are up. To take advantage of such moves, forex traders routinely use short positions to exploit falling currency prices. Traders from other markets may feel uncomfortable with short selling, but it’s just something you have to get your head around.

Squaring up

If you have no position in the market it’s called being square or flat. If you have an open position and you want to close it, it’s called squaring up. If you’re short, you need to buy to square up. If you’re long, you need to sell to go flat. The only time you have no market exposure or financial risk is when you’re square.